What is 'liabilities'?

Liabilities refer to the financial obligations or debts that a business owes to external parties, such as creditors, suppliers, or lenders. This definition emphasizes that liabilities are not assets or resources generated by the business; instead, they represent the company's responsibilities to pay back borrowed funds or settle debts incurred during its operations.

In the context of accounting, liabilities are an essential component of the balance sheet and are classified into current liabilities (due within one year) and long-term liabilities (due after one year). Understanding liabilities helps stakeholders assess a business's financial health and its ability to meet its short- and long-term obligations.

The other options do not accurately represent the concept of liabilities. For instance, resources generated by the business would be categorized as assets, while income gained from investments pertains to revenue. Assets that are easily liquidated relate to liquidity rather than obligations, further distinguishing them from the nature of liabilities.